These days, owning high-quality cryptocurrency coins can be considered the fiscally responsible thing to do. It wasn’t long ago that cryptocurrency was labelled as a fad by the mainstream financial world.
But now, the 2020s will mark the start of the decade wherein cryptocurrency will be considered a legitimate asset class. Investors who would disagree are missing out.
Adoption by the mainstream and the public’s dwindling trust in the government and its institutions are factors contributing to cryptocurrency’s current status. But aside from those, let’s take a look at some of the other factors.
It might be a weak point to some, but investors who believe in the power of trends should keep a close eye on how some cryptocurrencies are currently achieving mainstream status. This is largely thanks to how some large companies like Tesla and S&P are buying cryptocurrencies in huge amounts at a time. Both companies combined have bought $1.5 billion worth of Bitcoin.
There are also digital payment companies and cryptocurrency exchanges that are putting portions of their money into Bitcoin, adding up to about $100 billion.
But all in all, that is just a fraction of the total amount of money that can be converted to cryptocurrency. If another large company like Apple decides to convert a measly 10% of its cash into Bitcoin, then it would total to $19.6 billion, over 10 times the amount that Tesla has purchased. There is still a lot of cash that can be put into cryptocurrencies, especially coming from world governments like the U.S.
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Less Trust in Government and Institutions
Aside from the growing corporate support, individual investors are also contributing to blockchain currencies’ staying power. For a lot of ordinary investors, cryptocurrencies like Bitcoin and Ethereum helped them avoid the risk that comes with entrusting part of your portfolio to the government and its financial institutions.
Since cryptocurrencies are assets that do not require the interference of central parties in any parts of their transactions, they have become a way for retail investors to stay away from the fragility of traditional financial systems.
Using Cryptocurrency as a Hedge
Just last 2017, people from Wall Street saw Bitcoin and other cryptocurrencies as nothing more than a highly speculative project. Some would even refer to it as fraud, saying that you would pay the price for being stupid enough to buy it.
And because currently, stock prices are inflated, and there is impending economic uncertainty, crypto would make a popular choice in diversifying portfolios. Assets like gold were once seen as safe havens during times of uncertainty, and now people see cryptocurrencies in the same light. Cryptocurrency can help conservative investors avoid too much exposure to fiat currency if they are used to keeping a portion of their portfolio in cash.
Cryptocurrencies are a Deterministic Asset
For a major part of financial history, digital currencies just weren’t a possibility until today. Thus it has been touted as a scarce asset similar to the likes of gold that can be a store of value. It can be argued that the corporate interest and increased money supply combined make quite the compelling case for many ordinary investors to acquire cryptocurrency.
Natural commodities that are very limited in quantity like gold, silver, palladium and other precious minerals are still subject to changes in quantity since the number of reserves on Earth are still open to new discoveries. A cryptocurrency like Bitcoin, on the other hand, has a hard stop at the maximum amount of coins that could ever exist in circulation.
Currently, there is no other asset in the world that operates on that scale of scarcity. It is also unique when compared to other possible assets of the future. This is because the blockchain technologies behind them allow the cryptocurrency to exist as long as there is someone keeping a record and consensus of all the transactions ever made. Because of this, it is less likely to be affected by the uncertainty of the future.
If one looks at it from a different angle, there are a lot of factors that can contribute to making cryptocurrencies like Bitcoin less risky than other assets. It has a well-defined scarcity and cannot rapidly increase in supply over time. It can be used as a hedge without interference from the government, overall making it an incredibly unique asset despite its inherent volatility.
Large companies like Tesla and S&P have caught on to this early and are acting appropriately. If ordinary investors come to the same conclusion, they can also ensure that they have made their portfolios more robust.